The Rent vs Buy Decision: Roots or Wings?

Buying a home versus renting is one of those major decisions that you must pause and consider very carefully before taking the plunge. It comes with long-term costs and commitments, and is expensive to correct major mistakes. Like a marriage. Similarly, it is an emotional decision. Social pressure from your friends and family is brought to bear. Real estate is also a big business, and the sales tactics are powerful. For all of those reasons, it can get heated quite quickly. Even articles like this one stoke emotions and heated commentary. So, before you start seriously looking and definitely before you talk to an agent, carefully consider whether renting vs buying a home makes sense for you.

This post will explore the financial and lifestyle pros and cons of renting vs buying a home. Understanding this can steer you clear of advice that sounds convincing, but is based on superficial analysis. More importantly, you can boil the decision down to your preferences. Do you want to deepen your roots at a single address or grow your wings to explore and chase opportunities?

Why Pay Someone Else’s Mortgage?

This is such a common refrain used by those trying to nudge you into the real estate market that I want to tackle it first. It usually comes from friends or relatives, and is well-intentioned. As homeowners themselves, they often point to their own home as their best-performing investment.

The return on buying your home as an investment depends on the local housing market and the period you look at. Here is a numerical scenario that people are commonly presented with. I have modeled this on Toronto, since it is a commonly referenced market. It is typical in presentation, but it shows how oversimplification can be misleading. 

Say that you pay $2,800 a month on rent, which feels like ‘throwing money away’. Over 25 years, with 3.4% rent hikes yearly, that is $1.3 million gone. Alternatively, you buy a $1 million property and have an $800,000 mortgage. At 5%/yr interest, that’s a $4,653 monthly payment. Initially, that is $3,333/month lost to interest, which exceeds $2,800 in rent. However, the proportion of monthly payments that go toward interest will shrink as the mortgage shrinks. Over 25 years (assuming an interest rate of 5%/yr), you will pay $600,000 in interest in addition to the $800,000 in principal.

After 25 years, based on the amount lost to mortgage interest versus rent, buying a property appears to come out ahead. Plus, you will have bought and own a $1 million asset! That sounds better than having nothing after renting. It sounds amazingly better if you consider that house prices have likely increased over those 25 years. By a lot!

While it sounds convincing, this analysis is extremely flawed because it ignores the costs of owning and alternative ways to invest your money.

The Numbers: Homeownership vs Rent & Invest

The preceding comparison of renting vs buying your shelter misses several key variables and costs. In summary, homeownership ties up the money used for your down payment. Plus, the extra cash flow is required to maintain the home relative to paying rent. That is an opportunity cost. Instead of assuming that money disappears, a fair comparator would be how you would invest it. In both cases, you have a place to live, and you will have cash in hand after your home or investments are sold.

I will walk through this to flesh out the Toronto example because people have a hard time believing it – especially those who are already emotionally invested in the decision. I tried to use historical numbers for the time period, like rent and property tax increases etc. However, I am certain people will argue about tweaks here and there. That is not the point. The point is to illustrate that the decision is more complicated and the difference closer than people realize. In fact, those arguments make the point that small changes in variables change the results one way or the other!

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Down Payment, Closing, & Ongoing Costs

If you have $200,000 for a down payment plus $40,000 for Toronto closing costs, you could invest that money instead. Closing costs are roughly half that in most other cities. Still, that is a large amount of starting capital to invest.

You could also invest the $1853/month of extra cash flow from the rent being lower than the mortgage payment. Ownership also comes with property taxes of about $425/month. Owner’s insurance is usually about four times the cost of renters insurance, or $150/month more in our example.

Maintenance costs typically average 1-4%/yr. I’ll use 1%, or $850/month, for our million-dollar home. People often struggle to believe that because it is a lumpy expense. There may be years with low costs, and years when a roof needs replacing. Homes have all sorts of systems that most of us don’t realize exist until they fail. Updating to keep the property attractive to potential buyers is also a cost. Either you do it, or be prepared to get a lower price when you sell.

Put together, that is about $3,275/month in extra cash flow that you could invest. The cash flow advantage of renting would change over time as rent, property taxes, insurance, and maintenance costs increase.

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Return of Real Estate vs Stock Markets

If that money saved by renting were invested over 25 years, it would also grow. Historically, a portfolio of 30% Canadian & 70% global equities returned ~7% annually from 2000-2025. At that return rate, the downpayment and invested rent savings would give you a $4 million portfolio. 

Land also tends to appreciate slightly above the inflation rate over the long run. The compounded annual price growth rate from 2000 to 2025 was ~7%/yr for Toronto. That million-dollar home could be worth about $5 million dollars, after the realtor fees to sell it.

As modeled above, during that recent 25-year period, homeownership would have outperformed renting and investing. However, not nearly as much as a simplistic analysis would suggest. Importantly, the past 25 years in Toronto real estate have seen unusually high returns. Stock returns during that period were volatile, but in keeping with historical norms overall. That still does not predict how stock markets or real estate will perform in the future.

Historically, when you look globally from 1960-2020, real estate has returned 1-2%/yr above inflation. A look over centuries showed real estate capital returns to be flat when adjusted for inflation. In contrast, stock markets have historically returned 4-6%/yr above inflation. If you use 2%/yr above inflation for real estate returns (~1%/yr net of expenses) and 5%/yr above inflation for stock markets with the same costs in our model, renting and investing would have won with $3.6 million vs $2.9 million at 25 years.

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Bottom Line: Either May Win Financially – You Don’t Know Which.

If you don’t like the numbers in the above examples, you can use PWL’s rent vs buy calculator and adjust any of the variables. That is how I produced the charts shown above. The bottom line is that whether renting or owning is financially better depends on your local market and the time period. Ben Felix and Hamza Bin Arig recently analyzed the rent vs buy question using historical data for Canadian cities from 2005-2024. Their 2025 update is summarized below. For example, a renter/investor in Toronto for that period would have ended up with 37% more wealth. In contrast, a Vancouver renter/investor would have trailed by 12% over that 20-year period compared to owning. You can also see how improved renter cash flow relates to that.

This model assumes good behavior. For the homeowner, that means buying and not moving for twenty years, and not spending more on upgrades than necessary. Most people spend a lot more on renovations when it is their home, on stuff they would compromise on if renting. It also means not paying their mortgage off faster – leverage is one of the benefits of ownership. For the renter/investor, good behavior means investing in tax-sheltered accounts, keeping costs low, and exercising discipline to do so rather than spending the money on consumption. We’ll explore those issues in the coming sections.

Home Ownership Advantages

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Forced Investor Discipline

Renting and investing the money saved comes with some challenges. You would need the discipline to invest that extra money rather than spend it. Investing discipline is easier with home ownership – you must regularly pay your mortgage, and it is not easy to sell on a whim. You also don’t have a sign on the front lawn updating your house’s price minute by minute. A stock portfolio has that volatility readily visible, and it could provoke an emotional investing mistake.

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Home Ownership Gets Easy Access to Leverage (Debt to Invest)

There are two subtle findings on the chart I made using typical historical returns. First, even though real estate only returned about ~1%/yr after costs, it didn’t get crushed over the first 25 years. After the mortgage was paid off, investing crushed home ownership. Why? Using a mortgage to buy a home is investing in that home using debt. That is leveraged investing. Just like borrowing to invest in other areas, that magnifies gains or losses.

In our example, leverage started at 4:1 ($4 of the bank’s money for every $1 of your money) and decreased as the mortgage was paid. That magnified the return by a factor of 4, making it only slightly lower than the stock portfolio’s. As the mortgage was paid, the leverage decreased.

Critical to real life, that leverage could be devastating in the other direction. In our example, if your home had a more than 20% price drop early on and you had to move, you would be in big trouble. Your equity was wiped out – plus, you’d have to come up with an extra $50K to cover the costs of selling. That is what being “underwater” means.

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Principal Residence = Tax-Exempt. Investments = Maybe.

If the investments are in a tax-exposed account, there would be some drag on growth due to the tax on dividends or interest. Investing that money in tax-sheltered accounts like an RRSP, FHSA, TFSA, or RESP avoids that issue. If the property you buy is your principal residence, then its growth is also tax-free, giving home ownership a potential advantage for those who have maxed out their tax-sheltered accounts. In the model example with typical historical returns, investing only in taxable accounts makes the choice between homeownership and rent/invest a virtual tie.

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Control Over Your Housing

The biggest advantage of home ownership is housing stability. If you want to live in a specific location in a specific home and not be forced to move, home ownership is your best bet. You can also renovate to your tastes. Right or wrong, homeownership also carries a degree of social status in Canadian culture. Particularly among those who are already homeowners or soon want to be. That is not surprising, and homeowners still dominate the Canadian adult demographics.

You may want all of these things at some point in your life. However, you should consider whether that is the case now, when you weigh the trade-offs.

Home Ownership Disadvantages

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Maintenance Costs More Than Money

One of the reasons for the principal residence exemption is that we do not track the costs of owning a house and subtract that from the growth in value. However, maintaining a home costs more than dollars. You either spend time or more money doing basic maintenance jobs. Even if you hire someone, you must spend time dealing with them. For larger or more complex issues, it may take much longer than most people realize.

Renting allows you to come and go as you please. Your landlord must deal with the hassles.

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Selling to Move Is More Expensive & Stressful

Not only does renting allow more freedom due to maintenance, but it also allows more freedom to move homes altogether. The transaction costs of buying and selling a home are huge. Those costs are less daunting when spread out over decades. However, over a 5- to 10-year period, they eat a large part of the money you have spent on housing. In addition to the cost, selling a home when your money is on the line is stressful. Kids or pets in the mix make cleaning and planning for showings a big event.

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Becoming An Accidental Landlord Is Not a Plan

One way people who really want to buy, despite not knowing if they will have to move soon, rationalize their decision is to say, “I’ll just rent it out when I move instead of selling.”

People can invest in real estate as a business. However, like other businesses, that either means extra work or paying someone to do that work. You must also have a deliberate and well-considered business plan. A single real estate holding is highly undiversified. Local real estate is also a less efficient market, which means there can be mispricing. Mispricing may mean an opportunity for the highly skilled. Conversely, it poses a danger to those who are not. You must specialize in a business to do it well. Or pay someone else and trust them. Being an accidental landlord because you bought a property and decided to move does not usually fit that description.

One large controllable input is not overpaying when you buy. Were you thinking about price and business cash flow when you bought? Or the social status and lifestyle boost that it would bring? The same applies to renovations that you’ve made. Will the appeal to the average renter be enough to make them willing to pay higher rent to recoup costs?

If your property doesn’t generate positive cash flow after the expenses, then you are speculating on price appreciation. In addition to the variables impacting personal real estate as an investment discussed already, a rental adds more. For example, changes to rental regulations or tenant behavior. Buying a property and thinking you will just rent it out when you leave over a short timeframe is usually highly speculative. It may also be a significant stressor to manage the property if you move to another city or get a bad tenant.

The Root Decision: A Financial & Lifestyle Choice

Taken together, these factors simplify the decision more than many people expect. If you do not have the savings and cash flow required to comfortably buy and maintain a home, renting is the sensible choice. Stretching financially to buy may reduce your flexibility, and you may lose some of your freedom in exchange. This is especially important when your timeline is uncertain.

Because the long-term financial outcomes of renting and buying are often similar, lifestyle considerations frequently matter more than the investment math.

Buying provides stability. Like roots. Stronger roots are also a hindrance if you must pull up and leave. Renting offers freedom. Renters retain greater liquidity and financial flexibility. They can move more easily for career opportunities, relationships, or lifestyle changes. An investment portfolio can also generate passive income independent of working.

While those who have already put down roots may encourage you to do the same, pause to consider your own priorities. Are you truly ready to plant deeper roots? Or do you want to keep and grow your wings for now?